Alcatel Us Something Positive
Eric is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.
It took a while, but telecoms equipment maker Alcatel-Lucent
It's nice that the company has finally reached the profitability base camp, but it's scaling a tall mountain. It operates in a bitterly contested industry and faces big hurdles in its top two markets, America and Europe. The former is stuffed with well-funded, world-beating competitors like Cisco (NASDAQ: CSCO)
Additionally, ALU's nice 2011 numbers are a bit of a smokescreen. They were helped by around $466 million in deferred American tax assets and a $446 million contribution from call-center infrastructure subsidiary Genesys, which was sold last year and so won't be included in future results. The hundreds of millions of dollars in freshly generated cash flow is good, but there are bills to pay. The company had around $5.5 billion in debt at the end of 3Q and less than $4 billion to service it. Compare this to big rival Broadcom (NASDAQ: BRCM), which had a comparable level of cash on the last day of 2011 but a much lower debt figure (of $1.2 billion).
Thanks to its most recent results, Alcatel-Lucent probably has thousands of new shareholders who are now believers in the company. This is an encouraging first step, but it has to keep the momentum and grow its business in a more fundamental way. Otherwise, the law of stock market gravity will soon apply -- what goes up must, sooner or later, come down. And in this business it tends to come down fast.
Source: http://beta.fool.com/evolkman/2012/02/11/alcatel-us-something-positive/1913/
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